Move to the Sidelines
The IMC blog is holding a short position in the June Bund/BOBL spread that was originally entered on October 10th. Due to rollovers, the entry price is the equivalent of 30.73.
The nearest-futures Bund/BOBL spread has been stuck in a consolidation zone for the last few months. Initially, the trading range was defined by the price range that followed the bounce in the second half of December. But a failed breakout above the range in late February and a failed breakout below the range in early March reset those boundaries. After that, it’s been about as exciting as watching paint dry.

Bund BOBL spread (nearest-futures) daily
The September spread is priced more than a full point higher than the June spread and is currently trading higher than the late February price peak, basis the nearest-futures. Therefore, the expiration of the June contracts will cause the nearest-futures chart to show a breakout above the top of the range. This is bullish price behavior and not a good development for bearish bets on the European yield spread. On this basis, the blog is going to simply exit the June spread without entering a September spread. In other words, we’re not rolling over.
Since at least December, the September Bund/BOBL spread has made a series of higher lows. A double top that was established at the January and February highs was surpassed at the end of April below a pullback occurred into the first half of May. This is bullish.
The spread has been in an upswing since the May 9th correction low was established 29.95. So far, three-quarters of the pullback has been recovered. Things still look good for the bull side of the spread.

September Bund BOBL spread daily
A break of the May low would throw a wrench in things as it would put the nearest-futures spread back into the trading range and also crack near-term price support for the September spread. This would be a good reason to reenter a short position.
Trade Strategy:
Exit the hypothetical short position in the June Bund/BOBL spread at the market. Work a hypothetical order to short the September Bund/BOBL spread on a close below the May low of 29.95. If filled, liquidate the position on a two consecutive day close above the contract high that precedes the entry (currently at 32.15).